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Property Tax Post: The Business Personal Property Tax 'Apocalypse' is Here Again

On August 5, Michigan primary voters will see Proposal 1 on
the ballot, which would reallocate other tax revenues to help jurisdictions
that will lose revenue from the state’s phase-out of its tax on business
personal property.Assessed on the value
of commercial and industrial personal property, such as machinery and equipment,
businesses don’t like the personal property tax because in addition to paying
sales tax when they initially purchase their property, they then have to pay
tax on the property’s value each year thereafter. There’s also a lot of value
involved—total value of commercial and industrial personal property in Michigan
for tax year 2013 exceeded $22 billion.

Joseph Henchman of the Tax
Foundation called Michigan’s repeal of business taxes a “sign of the
Apocalypse” back in 2012, when Michigan Governor Rick Snyder signed a package
of bills to gradually phase out the state’s personal property tax, by first
exempting new property valued at less than $40,000 in 2014, then exempting all
new business personal property, and personal property at least 10 years old, in
2016.The current proposal builds upon
that phase-out by reallocating use tax revenues to ensure that jurisdictions
that relied on the personal property tax don’t see huge drops in revenue.

Michigan is one of only two states in the Great Lakes area
that levies a tax on business personal property, and the only other, Indiana,
has a lower tax rate, notes the Holland Sentinel. Proponents of the personal property tax phase-out cite this as a
disincentive for businesses to relocate to, or remain in, Michigan. Prior attempts
to repeal the tax were unsuccessful, largely because in heavily industrial
areas, local revenue is largely generated from the business personal property
tax. Commercial and industrial personal property makes up 70 percent of all
taxable value in Carson City, Michigan, and in several other municipalities,
such property accounts for more than 50 percent of all taxable value, according
to data from the Michigan Department of Treasury.

But on the other end, in approximately one-third of Michigan
counties, business personal property makes up less than 1 percent of all
taxable value. Thus, it is not surprising that these counties would not share
the same concerns about lost revenue as those with heavy industrial bases.
Consequently, the phase-out is a result of compromise between those areas with
very different reliance on the tax, so that those that rely heavily on the tax
will be reimbursed for the lost revenue by an expansion of the state’s use tax.

The use tax will essentially be split into two separate
taxes—a local community stabilization share tax levied by a newly created
“local” body (that ironically has statewide authority), and a state share tax that will continue to be levied by the
state. Because the proposal creates a new tax, voter approval is required. The
changes will mostly be “invisible” to taxpayers, because use tax rates will
stay the same, so revenue will just shift from the state to localities,
according to an analysis by
the Citizens Research Council of Michigan.

Some are skeptical that the compromise will work as intended
for reimbursing local governments for lost personal property tax revenue. James
Fouts, the mayor of Warren, the state’s third-largest city, said that
because the local reimbursement will depend largely on internet sales, many
companies who don’t report the use tax when they complete transactions could
limit that source of revenue intended to replace the lost property tax revenue.
Fouts called the phase-out a “’sweetheart deal’ for large manufacturers,” and
urged voters to vote against it.

The Holland
Sentinel called the proposal “a good deal for everyone in Michigan,” and
said it is supported by “virtually every business group and local government
association in the state.”We’ll find
out who gets their way in a few weeks.

Continue the conversation onBloomberg BNA’s State Tax Group’sLinkedIn page: If
you were/are a Michigan voter, would you vote yes or no on Proposal 1? More
generally, are businesses right in objecting to being taxed on property they
already own and paid sales tax on at the time of purchase?

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